The euro is selling off today following recent comments from ECB officials. In the last two editions of the euro daily update, we have warned that the currency's recent strength looks overdone. Specifically, the euro is due for a short-term pull back given that it looks technically overbought, and due to the risk of ECB verbal intervention. Yesterday, the ECB's Villeroy commented that the Bank must watch the euro exchange rate given its (negative) impact on inflation. Earlier today, ECB Vice President Victor Constancio commented that the euro's moves don't reflect fundamentals and that changes to the ECB's forward guidance won't be immediate. The combined impact of the statements is likely to put pressure on the common currency in the short-term. Eurozone inflation figures will be announced later today and expectations remain low. Our short-term and medium-term outlook on the currency remains bullish.
EUR/USD is currently down and trading above 1.2220. The euro is flat against the yen, with EUR/JPY trading above 135.40. Finally, the euro is down slightly against the pound, with EUR/GBP above 0.8870.
Looking at Eurozone economic data and events, markets will be watching upcoming inflation figures. Eurozone trade balances were ahead of estimates (€22.5b vs €22.4b expected). German wholesale price index (-0.3% vs. +0.3% expected) were below estimates while consumer price index figures (1.6%) met expectations. Later today, we'll get core and headline consumer price index data from the Eurozone. Finally, we'll see German producer prices on Friday. Last week, Eurozone economic sentiment and German industrial production growth was at multi-year highs.
As the euro strengthens thanks to the strong outlook for its economy, we are upgrading the currency to bullish in the short-term. Looking at various technical indicators, the currency is looking overbought. This is based on a daily chart of the euro currency index.
As monetary policy expectations and economic growth power the euro, we are upgrading the outlook to bullish in the medium-term. Note that the euro is currently looking overbought. Our analysis is based on various technical indicators when looking at a weekly chart.